Income tax on sale of land

I orally made a deal with a person for buying 4 acres of agricultural land in Nagar Panchayat at Rs 2 Lacks per acre. It is his ancestral land registered in his name, his forefathers owning it since 1950. Now I am planning to pay him 8 lacs and get land transferred in my name and Seller is OK with it. But seller is telling me that the registered sale deed market value (decided by district collector, according to which stamp paper is purchased), of the land is 93 lacs, so he will have to pay income tax on 93 lacs and not on 8 lacs. My question is:
1. Whether he will have to pay income tax on 8 lacs or 93 lacs.
2. Will I have to pay any tax? A lawyer is telling me that I have to pay tax on 93lacs - 8lacs = 85 lacs.

Asked 1 year ago in Income Tax from Bhopal, Madhya Pradesh

Since you are the buyer in this case , let discuss the buyer prospective . The issue is covered under section 56(2)(vii)(b) of the IT Act . As per this an Individual who receive from any person on or after 1/10/2009 , any immovable property for a consideration which is less than the stamp duty value of the property by an amount exceeding 50000/-the stamp duty value of such property as exceeds such consideration, shall be included in the income under the head Income from other sources . Thus in this case the amount of Rs 85.00 lacs will be added in your income as you are the receiver of the immovable property .
Thus we agree with the view of the lawyer .

Yes, Seller has to compute tax on Sale value or Registered Sale Deed Market Value, whichever is higher. However, he can tax benefit of indexation and reduce the tax liability.
Receiving land below the market value will be treated as gift and will be added to your income for tax purposes
Regards
Ankit Jain
ankit@ajsh.in

You will have take the value as 93 lacs for capital gains purposes. You cannot sell asset below the stamp duty value. Therefore you have take 93 lacs as sales consideration for capital gains purposes and pay tax on 93 lacs.
However, please check whether your asset is covered under definition of capital asset.Rural Agriculture Land is not covered under definition of capital asset. Only urban agricultural land is treated as capital asset.Urban Land is situated in urban area or upto 8 kms from municipal limits of urban area.

Case :1 Presuming Land is situated in Rural area
Agricultural land in Rural Area in India is not considered a capital asset. Therefore any gains from its sale are not taxable under the head Capital Gains.
Case :2 Presuming Land is situated in Urban area
1. The said seller have to pay income tax on 93 lacs less cost of acquisition. (Sec 50 C)
2. The buyer is not required to pay any income tax. He have to deduct Tax from the Payment to be made.
(Sec 194IA)

Dear Sir,
In your given case you are receiving the property for inadequate consideration, i.e a property worth 93 Lacs as per municipal records for only Rs.8 Lacs. Which as per tax laws is a gift from a Non Relative and hence taxable under Other Sources in your hand.
I agree with the view of your lawyer that you will be liable to pay tax on 85 Lacs.
Regards,
CA Rohit R Sharma
+91-9920930544.

Yes it is absolutely right that Seller will have to pay tax on 93 Lacs sales value. Bcoz sales value cannot be less than Stamp Duty Value as per Sec. 50C.
Further As per Sec. 56(2)(vii) amended by FA 2013 if you receive any Immovable property whose Stamp Duty value is More than. Consideration you paid. Then such difference amount will be treated as Income of Buyer under Other Source Head of Income.
So it is True that Seller will have to Pay Tax according to Value 93Lacs as Sales Consideration and Buyer(I.e. YOU) will have to pay tax on 93-8=85 Lacs.
Regards
CA Abhishek Chordiya
+91-9001686968

1. Please see that if it is agricultural land and conditions for agricultural land is fulfiled, then there will be no tax on sale of agricultural land. please consult your local consultants for this.
2. seller has to taken into account Rs 93 for calculation of taxable income and not Rs 8 lac
3. If only it is proved that you have paid black money then you will be liable to pay tax and penalty.

1. As per the provisions of section 50C of Income Tax Act the seller will have to pay tax on Rs.93 lacs unless the value is disputed before the Collector of Stamp Duty and the Collector of Stamp Duty accepts the value of Rs.8 lacs as Stamp Duty value.
2. It is also true that section 56 (2) (vii) you will be liable to pay Income Tax on Rs.85 lacs unless you are related to seller to you as per the proviso to section 56(2)(vii).

If the market value is 8 lakhs then in income tax give application for the valuation officer for valuation land by the income tax valuer. They will decide the valuation and then you have to pay taxes as applicable.

Regarding the above, concern is about where the agriculture land is situated as the Capital Gain tax on agriculture land is arises only in case when agriculture land fall under the categories of Capital Assets
Section 2(14) which defines Capital Asset reads as under:
“ Capital Asset” means property of any kind held by an assessee, whether or not connected with his business or profession, but does not include agricultural land in India, not being land situate –
(a) in any area which is comprised within the jurisdiction of a municipality (whether known as a municipal corporation, notified area committee, town area committee, town committee, or by any other name) or a cantonment board and which has a population of not less than ten thousand according to the last preceeding census of which the relevant figures have been published before the first day of the previous year; or
(b) in any area within such distance, not being more than eight kilometers, from the local limits of any municipality or cantonment board referred to in item (a), as the Central Government may, having regard to the extent of, and scope for, urbanization of that area and other relevant considerations, specify in this behalf by notification in the Official Gazette.”
I would like to request for the tentative distance of the place at where such land is situated from nearby municipality. If distance is more than 8 km than no question of Capital Gain tax will arises as the land does not fall under the category of Capital Assets. Also Section 10(37) provides the exemption from capital gains from above mentioned agriculture land.
And also, TDS u/s 194LA shall not attract in above acquisition.
In in case land is not fall under above category. Seller has an option to consider the cost or market value as a cost in case of capital assets become the property of the seller before 01.04.1981.
But, In case if the land was sold below circle rate,
Capital Gain tax should be arise in the hand of Seller,
= Circle Rate - Cost of Acquisition
Income form other Source in the hand of Buyer,
= Circle Rate - Purchase price
Need to analyse more in this case .

U/s 50C of Income Tax Act, if a property is transferred for a consideration less than the registered market value, on the basis of which stamp duty is paid, the registered market value will be considered as the deemed consideration and the seller will have to pay capital gains on the deemed consideration, though his actual consideration is less. Thus your seller will have to pay capital gains, taking Rs 93 Lakhs as the purchase consideration, though he actually receives Rs 8 Lakhs only.
If the actual consideration is Rs 8 Lakhs only and Rs 93 Lakhs is unreasonably high, you may dispute the value before the stamp valuation authority or in appeals before the courts. Based upon such dispute raised by you before the Stamp Valuation authority (because stamp duty is paid by the buyer) and/ or the court(s), the actual consideration can then be taken as the basis for computation of capital gains. In such a case, the assessing officer may opt for valuation of the property and adopt such valuation for the purpose of determining capital gains.
Deemed consideration is applicable u/s 50 C only for the seller of the property and not for the buyer. The difference between market price and the actual consideration cannot be considered as deemed income in the hands of the buyer. However, the assessing officer of the seller, based upon valuation report, may refer to your assessing officer to examine whether you have paid only the actual consideration as stated in the sale deed or more.

In your case the income tax is payable for you is on 85 Lakhs as income from other sources under Section 56(2)(vii).
In case of the seller he needs to pay tax at 93 lakhs U/s.50C.
By the Finance Bill-2013, it is proposed to amend the provisions with effect from 01.04.2013 so as to provide that even if the immoveable property is received for an inadequate consideration (i.e. the difference between stamp duty valuation and transactions value is more than Rs.50,000/-), then such difference shall be taxable in the hands of the recipient individual or HUF as Income from Other Source.

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